Focus on length-of-service benefits

Margaret Kubicek examines what impact new age discrimination laws may have on staff benefits.

Questions abound over the impact that next year’s new age discrimination laws will have on reward and benefits for staff based on their length of service. The lack of clarity in the draft legislation has led to some degree of scaremongering that everything from high-street vouchers marking significant milestones to incremental increases in holiday entitlement will be deemed discriminatory come October 2006.

Nine in 10 employers recently surveyed by the Employers Forum on Age (EFA) said the draft laws were “complicated and confusing” with regard to service-related benefits, and three-quarters of respondents said they would consider removing benefits rather than having them challenged.

Re-evaluation

But while the new laws should prompt employers to re-evaluate the range of benefits and rewards they offer, there’s no reason to assume length-of-service has had its day, says Martin Cooper, head of marketing at reward specialist Cottrills. He warns against taking a ‘doom and gloom’ view.

As long as employers can justify that rewarding length of service provides a clear business benefit, he says, they will not fall foul of the new legislation. “The key general provision in the legislation regarding long service talks about rewarding loyalty, encouraging motivation or recognising the experience of the employee,” adds Cooper. “You have to conclude there is a business benefit from those three things.”

The legislation stipulates that length-of-service criteria must be applied to all staff, not just certain staff in certain circumstances. But, as Cooper points out, “that’s always been the case with long service”.

Jonathan Haskell, chief executive at reward specialist Michael C Fina Worldwide, agrees. “The beauty of long service is that it is an equitable way of measuring things. People like it, but it is not the gift that’s most important, it is the manner of recognition.” In other words, it is as much about delivery of the award before an audience of peers as the gift itself – and the general consensus among legal and reward experts is that the new laws won’t jeopardise long-service awards.

Showing advantages

For benefits, however, the case is not so clear cut – despite the government’s apparent effort to provide clarity in the draft legislation by including an exemption for length-of-service benefits up to five years. Take the common practice of pegging increases in holiday and sick leave entitlement to the number of years of employment. “Once you get over five years, you have to show it is to your advantage as an employer to keep increasing it,” says Ashley Norman, partner at law firm Pinsent Masons.

Employers are more likely to be able to justify allowing annual incremental increases than structures in which employees get a certain number of days every few years, advises Norman. “Year-on-year over a shorter term, you can see it’s going to be more of an incentive [for employees]. It’s a reasonable case to say it gives the employer the advantage of encouraging retention and creating stability in the workforce.”

Linking salary increases to length of service is another benefit the new legislation will call into question. Local authorities, for example, were already in the process of reviewing pay structures before the draft age laws came out, with a view to introducing common terms and conditions by April 2007. The new age laws will put further pressure on the sector to peg incremental rises to performance, according to Geoff Dean, head of personnel at Gateshead Council. “Employers need to build into their thinking what they’re awarding increments for,” says Dean. “If it is directly for [length of] service, it could be discriminatory to younger employees.”

Exemptions

From the outset, the EFA has lobbied for long-service benefits to be exempt altogether. It is now calling for, as a minimum, exemptions for incremental pay scales, leave entitlement, sickness benefits, long-service awards and health screening/checks.

Employers should thoroughly review all benefits for age bias now, says Norman. “Even if [employers] decide not to change anything, if they have to justify it later they will be in a good position to do so – and it will also put them in a better position should a legal claim be brought against them.”

EFA director Sam Mercer advises employers to look at how they can evidence their policies and practices, including long-service benefits, culling those that have no justifiable business benefit.

“Our advice is to get rid of whatever you can; the logic being you’re not going to put effort into justifying everything – that simply won’t be possible,” she says.

However, Norman warns against hastily doing away with benefits of any kind out of fears of a potential lawsuit.

“It may be that in certain cases you end up levelling down, but you need to be very careful about doing that,” he explains. “You may eliminate discrimination but end up in breach of contract.”

As for a way forward, flexible benefits – already a rising trend – could offer something of a solution. But again, employers should proceed with caution.

“It’s not just about having a choice,” says Dean. “People’s needs change as they get older, and it’s about having choice for every age group.”

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